Wednesday, June 26, 2013

Thinking Outside the Box

Upstate NY is sputtering and staggering, economically speaking, and many of its cities are teetering on insolvency. It is clear that something needs to be done to reverse these perverse circumstances. The real question is, what?

Governor Cuomo has embraced a hastily put together tax incentive program, which would reward start up businesses with tax free zones in and around SUNY campuses. It is an idea which, if properly administered, could hold great promise. It could also be nothing more than St. Elmo's fire, a flash in the pan program that sounds better in press release than it translates to in reality. Nevertheless, it is a concept worth exploring. But there are other ideas worth exploring too that our Governor might consider to help give Upstate NY the power to pull itself back up by its own bootstraps.

Maybe what we really need to do is seriously think outside the box. Tax incentives can help spur growth and development, but the larger picture of tax structure, regulatory refinement, and business friendly governance must be looked at too. It would be foolhardy to put all of our development eggs in one basket.

So, I'd like to advance another incentive proposition that might just work to unshackle Upstate NY from it's economic doldrums. I call it the "Energy Generation Zone" concept ( EGZ) .

The mill towns of upstate New York sprang up along the waterways where there was abundant water power to drive the engines of economic opportunity. At the turn of the century, electricity was mostly locally produced, and locally distributed. Hydro plants gave way to coal fired plants, and coal fired plants gave way to nuclear plants, and nuclear plants gave way to cleaner fossil fueled plants that burned natural gas. Energy came to be transmitted over long distances to satisfy the craven appetites of a growing megalopolis .

One silly thing happened on the way to market, though... someone forgot to charge more for electricity that traveled longer distances. No differential was allowed for pricing electricity according to distance from the generating source.

As a result, there was little profit incentive to build bigger and better transmission lines. Our system grew like suburban sprawl. So many lines, so few transmission corridors! And now, we find ourselves imprisoned by a huge Rube Goldberg powerline contraption strung together like so many tin cans, with a lot of twine. Could we fix it, and spur economic growth at the same time?

Yes, we can, and we should. We can price electricity and natural gas , in part, on how far you have to send it from the source to the destination. We can give communities willing to host electrical generation plants, like Nuclear Plants, or natural gas production and drilling plants, incentives for hosting them by allowing some of the product generated to be consumed locally at reduced rates. What’s wrong with taking, say, 20% of the power generated and selling it locally at reduced rates? It would attract industry, and give business and residential customers who live in the shadow of these facilities a break on their rates as a bonus for hosting the plants. If we incentivize power and gas production, there will be less contention about hydro-fracking, and more competition to host energy production. It could accomplish the reversal of fortunes our Governor is seeking.

Perhaps it is time to step outside the tax incentive box, and think just: incentive. After all, that is what makes our capitalistic system hum, and we could certainly use a little more hum and a little less ho-hum in Upstate New York. What say you Governor?